Meeting sustainability reporting requirements in the EU is certainly no easy task. As the EU looks to balance progressive policy and remain competitive internationally, leaders planned to release a framework - the Omnibus Simplification Package - to remove unnecessary red tape blocking economic growth on the continent. Despite rumors of a potential delay over the past week, the European Commission has officially scheduled the package to be a part of the February 26 agenda.
The Omnibus Simplification Package aims to streamline sustainability reporting and reduce administrative challenges. It does so by targeting three established pillars of the European Green Deal: Corporate Sustainability Reporting Directive (CSRD, 2022), Corporate Sustainability Due Diligence Directive (CS3D, 2024), and the EU Taxonomy (2020).
The Commission has made it an explicit goal to ease reporting requirements by 25% for large companies and 35% for SMEs - part of a broader initiative to simplify sustainability disclosures while upholding the EU’s ambitious environmental goals.
While there is much still to learn as the proposed changes go through the necessary approval processes, we at Clearyst wanted to provide a summary of the highest priority potential changes and their impacts, as well as outline a strategy for how businesses can prepare appropriately.
Highlighted proposed changes
Reporting delays for CSRD and CSDDD by one to two years
While a few countries including Spain and Italy have expressed support for staying with current CSRD timelines, Germany and France both requested pushing back CSRD by two years. France also asked the EU to delay CSDDD indefinitely
Size threshold for reporting requirement reduced
A change would mean that only the largest companies (1,000+ employees and $450 million turnover) need to comply with CSRD and CSDDD. Previously, the “largest” companies were made up of those companies with 250+ employees and $40 million turnover. This takes the total number of companies exposed down from 50,000+ to just ~7,000 companies.
Sector-specific standards held or scrapped
While the original CSRD text would introduce mandatory sector-specific reporting requirements over time, the new rules propose getting rid of these or at least suspending them altogether.
Supplier scope limited to direct only
The proposed change would only require due diligence as a part of CSDDD on direct suppliers rather than the entire value chain as previously agreed upon. The risk assessment will also only include direct suppliers unless plausible information suggests indirect risk that must be considered.
Penalties and liabilities eased
Companies that were previously set to face civil liabilities for noncompliance will now no longer have to, as all civil liability provisions would be removed. Not to mention, the requirements to pay penalties for violations in the amount of at least 5% of annual turnover would be removed.
The challenges and impact on businesses
While the new Omnibus Legislation intends to ease the reporting requirements for the benefit of businesses exposed to CSRD, CS3D, and EU Taxonomy, trying to find the overlap between these three distinct distinct regulations could come at the cost of establishing quality sustainability practices. CS3D in particular goes well beyond reporting and disclosure, mandating that companies implement processes to address environmental and human rights issues.
A joint letter from 11 businesses and organizations including DP World, Mars, Nestle, Unilever, and Ferrero urge the European Union not to reopen legal negotiations on CSRD, CS3D, or EU Taxonomy. Early adopters who have invested significant time, money, and resources into implementing the strategy and processes necessary to prepare are at risk of having to adjust their strategies.. As shifting regulations can undermine proactive efforts, companies that have been delaying compliance may face fewer disruptions. For years, businesses were encouraged to adopt sustainability measures early on, but due to ongoing revisions, this advice now appears almost ironic. The Omnibus, pending approvals, certainly has the potential to influence how businesses report on sustainability and the strategies for ensuring compliance.
What can businesses do to prepare?
- Be strategic about sustainability. CSRD and other sustainability reporting requirements are simply a catalyst for organizing commitments and assessments. Organizations - regardless of size - should continue to invest in sustainability efforts as a strategic priority to better understand climate risks and opportunities, build resilient business models, and outperform the competition.
- Remain focused on existing reporting and compliance. Given the uncertainty in both timing and content of the proposed Omnibus package, companies that choose to wait and see may end up being non-compliant. This would mean potentially significant monetary fines and penalties, as well as reputational damages.
- Stay vigilant. With the potential for continued changes amidst the evolving sustainability reporting landscape and the necessary approvals to pass, it’s important for businesses to keep a close eye on the regulatory and legislative environment. Leverage software and advisory services to obtain the deepest expertise and fully understand the true scope and impacts on your business.
At Clearyst, we’re here to help you navigate the dynamic landscape that is European sustainability reporting with rapid regulatory guidance and efficient data management solutions. Reach out to hear more from our team about how the Omnibus Package may affect your business, and how you can best adapt to position your organization for success.